How to form an S-corporation for Digital Design


If you’re a designer, your clients will probably want to know whether or not you form an S-corporation for your business. This question is important because the type of business structure you choose can have an impact on many things: how much tax you pay, how much liability protection you have, and what laws apply to your business. In this post, we’ll go over some of the basics about forming an S-corporation for digital design and why it might be right for your company.

Define your business structure

If you’re a freelancer, clients may ask about your business structure. This is because they want to know what kind of tax liability you have and how that might affect their own taxes. Here are some sample responses:

“I’m an S-corporation.” This means that the IRS has ruled that you’re a separate entity from yourself as an individual, so it’s not just your income that matters but also the income of all shareholders in your company. The advantages are lower self-employment tax and double taxation avoidance. An alternative structure for freelancers who don’t have customers or clients is a sole proprietorship; this is similar to being an independent contractor, meaning there’s no legal distinction between you and your business when it comes to taxes or liability issues, which can make things simpler but might also mean higher self-employment tax rates.

One of the most common business structures for designers is an LLC, S-Corporation or C-Corporation

The most common business structures for designers are an LLC, S-Corporation, or C-Corporation. All of these structures give you the benefit of being able to deduct the cost of your office equipment and supplies from your taxes.

An LLC is a limited liability company that allows you to organize as a pass-through entity, which means it’s not taxed directly and passes income through to you as personal income. The biggest advantage of an LLC is that there are fewer formalities than other types of corporations, so it’s simpler to set up and maintain than an S-Corp or C-Corp. It also offers more flexibility in terms of management structure—you can decide what kind of management structure works best for your company based on its size and needs.

A Subchapter S Corporation (S Corp) is basically an LLC that elects not to be treated as such for tax purposes; instead, it is treated like any other type of corporation for tax purposes with one exception: owners must pay self-employment taxes on any profit earned by their companies. The main advantage here is simplicity—the owner doesn’t have to file personal returns or deal with payroll or withholding requirements because all those responsibilities fall under his/her corporate status. This can also help reduce overall costs because there aren’t as many associated expenses when operating within this structure as compared with other options which may require additional costs such as estimated quarterly payroll taxes due during filing periods.

Each business structure has its own tax and legal implications

An S corporation is a special type of business entity that has some features of a partnership or sole proprietorship and some features of a corporation. Forming an S corporation gives you limited liability protection like other corporations, but you can avoid double taxation by taking advantage of the income tax rules that apply to partnerships.

The federal government has set up several types of businesses as corporations. These include C corporations, Subchapter S corporations, and limited liability companies (LLCs). In addition to these four types, there are many more state-specific corporate structures outside this list. Each type has unique legal requirements for how it operates and pays taxes.

The S-corporation is a great choice if you work as an independent contractor or sole proprietor

You are taxed on your individual income, not the corporation’s income. In fact, you’re taxed on the distribution of dividends from your corporation, not its earnings.

In other words: if your business grows and makes more money, that additional revenue doesn’t come into play when you’re considering how much to pay yourself in salary or how much to distribute as dividends.

Stockholders pay taxes on the distribution of dividends, not on the income of the corporation itself

This is different from a sole proprietorship or partnership; in those cases, profits are taxed at both the corporate and individual levels.

Taxation of an S-corporation’s dividends is exactly like taxation for an individual: Any dividends you receive from your company will be taxed as ordinary income and subject to any tax deductions you have available. The only difference is that instead of claiming those deductions when you file your personal tax return, you’d claim them when filing for corporate tax purposes.

It’s important to understand what forming an S-corporation for Design business

For example, as an S-corporation, you’ll need to file your own tax return and pay payroll taxes. You may also have some additional legal obligations depending on the state in which your business operates.

Many designers are not aware of these details when they start their businesses, so let’s break down the main three categories: tax implications, legal implications, and everyday life in an S-corporation.


For more information about how to form an S-corporation for your design business, contact us today!

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